Unveiling the Hidden Impact of Urban Land Rents on Total Factor Productivity

August 25, 2023

Preview Citation

Format: Chicago

Bas B. Bakker Unveiling the Hidden Impact of Urban Land Rents on Total Factor Productivity, (USA: International Monetary Fund, 2023) accessed December 11, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper addresses the puzzling decline of Total Factor Productivity (TFP) levels in rapidly growing economies, such as Singapore, despite advancements in technology and high GDP per capita growth. The paper proposes that TFP growth is not negative; instead, standard growth decompositions have underestimated TFP growth by overestimating the contribution of capital, failing to account for the substantial part of capital income directed to urban land rents. This leads to an overestimation of changes in capital stock's contribution to growth and thereby an underestimation of TFP growth. A revised decomposition suggests that TFP growth in economies with high land rents and rapid capital stock growth, such as Singapore, has been considerably underestimated: TFP levels have not declined but increased rapidly.

Subject: Capital income, Financial institutions, Land prices, National accounts, Population and demographics, Prices, Production, Stocks, Total factor productivity

Keywords: Asia and Pacific, Capital income, Capital Stock, Decline of total factor productivity, Diminishing Returns to Scale, Economic Growth, Growth Decomposition, Land prices, Land rent, Land Rents, Population Density, Re-estimating TFP, Singapore, Stocks, Technological Progress, TFP level, Total Factor Productivity, Urban Economics

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/170
Stock No:

WPIEA2023170
ISBN:

9798400252808
ISSN:

1018-5941

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